Market update: The green shoots – what are the early signs of market recovery? (Ep.44)

In this week’s episode we turned our thoughts to focusing on the green shoots, marking the early signs of recovery with the federal and state governments now turning their focus on how we navigate an effective exit of the shutdown, whilst keeping infections low or entirely eradicated. We have seen talk of lifting restrictions, sporting bodies have been working through their plan to get back on the field and elective surgeries are back on the agenda. This adjustment in focus to how we exit successfully has the ability to spur on the initial turn in market sentiment and provide a glimpse into the possibility of opening back up the economy and workplaces.

In this episode David Johnston, Cate Bakos and Peter Koulizos take you through:

What are the tell-tale signs of recovery and a rebound in market sentiment?
Comparing the market forces between last year’s post-election recovery and how the post Covid-19 property market rebound could play out in 2020 and 2021.
Who are the early movers that have the confidence to purchase in a shifting market and are you prepared to take the plunge?
Negative Nellie’s – why the media is focused on predominantly negative outcomes and you should be very selective in who and what you listen to.
The Bull Market of the last two weeks and how the US federal reserve stared down short sellers – how the share markets are a leading indicator of the overall economy (but has the rebound been overly optimistic?), what the US federal reserve did to stave of short selling hedge funds and some education on how the financial markets work.
And of course, our ‘gold nuggets’!

We wish you and your families the best of health and say a big thank you to all our health workers during this time.

Listen and subscribe

Apple Android

Covid-19 resources

Resources:

Show notes

Property update – how purchaser competition is starting to heat up. Auctions are now being held over video conference, with pre-auction offers being entertained. Cate’s experience over the weekend, was a dynamic online auction sold under the hammer, with 10 prospective purchasers joining the virtual auction room. Each property has had strong competition.
What are the ‘early signs’ of market recovery? The government is talking about restrictions being lifted in a month or so, people can visualise the other side, so there has been a lift in spirits. Even the fact that major sporting bodies are talking about and planning how they will get back into it and elective surgery up and running again – these things change sentiment. Government incentives to purchase, like first time buyer boosts and reducing the red type for new builds to start. Access to finance opening up and lenders fighting for borrowers. Auction numbers increasing, as well as clearance rates. State and international borders opening up – this is a big one as overseas migration makes up two thirds of annual population growth. Offset by housing starts being at their lowest since 2013, fallen off a cliff so no new stock. US and China opening up their economies.
The expected recovery v last year’s post-election recovery – last year we saw a sharp bounce back, as the election posed a yes or no answer. Sentiment changed literally on the Sunday after the election, Scott Morison is in, negative gearing won’t be impacted and Bill Shorten’s ideas won’t fly. The key here was certainty. There were no green shoots, just bang! This situation with virus containment is not in or out, it’s different, there will be a more staggered adjustment of positive sentiment, as there is still much uncertainty and there is a risk of second run of the pandemic.
The market forces last year was a case of supply and demand, where increase in demand happened over night, but not an increase in supply. It took a while for vendors to catch on that now is a good time to sell and with panic buying, values were driven up and as people were fighting over property. At the moment, there is still a lot of people saying that they’re going to sit it out, so there is low stock levels as it is incredibly hard to sell a property at this time, particularly if it is tenanted.
Early movers – who are typically the buyers who do jump in first? They have a higher risk profile, certainty of income, often high income and net wealth, significant equity/cash reserves. Also home buyers who have a strong desire to get into their own home that outweighs market timing.
The risks of not being an early mover – if you sit it out and wait, the market conditions may get worse and you’ll be pleased because you may get something better. But if you wait it out and the market conditions improve, and prices starting getting away from you, that is not a good outcome. Think to yourself, what is the magnitude of pain if you miss out on a property because the market is moving v the disappointment that you could have gotten a sharper deal.
Real market conditions v reported conditions- what is the lag time? Snippets can come up through the media in one week to one month. Clarity usually takes 3-6 months, by which time, a lot of the gains may be gone because the market has already moved in the meantime. Market segmentation is not factored in, you cannot apply one paintbrush and say here is the percentage of price falls – it will be different for each location and property type.
Negative Nellie’s and alarmists – what drives them to share negative outlooks with friends/family/media? They probably don’t invest in property or don’t own a property, maybe just a home. They have vested interests, like family members who want to purchase that they are concerned about. Their natural mindset is pessimistic or cynical. Their risk appetite at 0 and they will not do something that will pay off.
Negative news creates better headlines and the media’s job is supposed to inform people of risks in society, not really the opportunities that you can take advantage of. You get a slant towards the negative in news stories. It’s really important where you go to get your information and the quality.
How will the property market recovery compare to other industry rebounds? The share market is likely to lead first, it is a leading indicator of the overall economy. US and Australian share markets have risen over 20% in the past couple of weeks, after a huge tanking of 30%. Our feeling is that this sentiment may be overly optimistic.
What do we think lenders will do as we move into ‘green shoots’ territory? Rates will stay low with competition for refinances and new purchases among lenders will increase. The big banks will strengthen their position through this and market share will grow as happened through the GFC because the relative cost of funding increases, although the government has put in place a strategy to support non-bank lenders

David Johnston- The Property Planner’s Golden nugget: if you are thinking about buying, whether a home or investment, get your ducks in a row, get your Property Plan in order, mortgage strategy in place and look for a great buyers’ agent if you’re going to use one. We had the head of infectious diseases at a major Melbourne hospital and an infectious diseases physician, sign up for property plans at the end of February. That’s a good insight that they could see what was coming with coronavirus and thought it was time to get their property plan in order, great anecdotal example of what the experts were thinking.

Cate Bakos- The Property Buyer’s Golden nugget: be discerning about where you get your information from, and when you’re looking for indicators in relation to property market. At the coal face, you can look at the days on market before a property was purchased, ask the agent how many buyers were there? If there is more buyer competition and shorter days on market, this is a reliable measure of the heat of the market.